EU State Aid: EU Commission Consults on New Rules on State Aid for Companies in Difficulty

Sullivan & Cromwell LLP - 3 December 2013

On 5 November 2013, the European Commission released for public comment proposed new guidelines on state aid for rescuing and restructuring companies that operate in sectors other than financial services coal and steel. The proposed guidelines are intended to replace the Commission’s current Rescue and Restructuring Aid guidelines and will, if adopted, tighten the conditions under which rescue and restructuring aid can be granted in the EU. The proposed guidelines deal with substantive and procedural aspects. The principal changes reflected in the proposed guidelines are as follows:

New Definition of “Undertaking in Difficulty”

  • Only “undertakings in difficulty” are legally eligible to receive rescue and restructuring aid. Consequently, the definition of an “undertaking in difficulty” is key to determining the situations in which an EU member state can grant such aid. The proposed guidelines add new elements to the definition based on the aid recipient’s credit rating, debt-to-equity ratio and earnings.

Temporary Restructuring Support

  • The proposed guidelines introduce a new type of aid to be known as “temporary restructuring support”. It is a hybrid between (i) rescue aid (which must be limited to six months) and (ii) restructuring aid (which is of long-term nature and requires far-reaching restructuring of the aid recipient). Temporary restructuring support is intended to provide liquidity assistance for periods of either 12 or 18 months for small and medium sized enterprises.

More Stringent Tests for Aid to be Approved by the Commission

  • To ensure that EU member states grant aid to undertakings in difficulty only when the public interest outweighs the distortive effect on competition, the proposed guidelines put forward extensive conditions that aid-granting EU states will have to meet in order for the aid to comply with EU law. These conditions aim to ensure that the aid is targeted at cases where it is really required and serves the public interest.

Burden Sharing

  • The proposed guidelines include new rules on “burden sharing” which require a greater contribution from shareholders and creditors of the aid recipient to the restructuring costs. The changes reflect the Commission’s extensive experience in determining “burden sharing” in its assessment of aid granted to financial institutions during the financial crisis.

The deadline for comment on the proposed guidelines is 31 December 2013. The Commission plans to adopt the new guidelines in the first half of 2014.